BEPS Actions

Base Erosion and Profit Shifting

There are 15 BEPS Actions that are currently being considered and worked on by the OECD. For each of the Actions, there are factors to consider such as the timing, impact and potential impact on policy. The OECD/G20 has set a number of deadlines to conclude on the BEPS Actions. BEPS Actions Implementation Matrices give details of progress on adoption of the BEPS Actions by country and expected timing of implementation.

Final package of measures

On 5 October 2015, the OECD published 13 final reports and an explanatory statement outlining consensus actions under the base erosion and profit shifting (BEPS) project. Links to the final reports can be found below under the relevant Actions. The OECD's explanatory statement can be accessed here.

Action 1: Digital economy

Action 1 addresses the tax challenges of the digital economy and aims to identify and address the main challenges that the digital economy poses for the existing international tax rules.

A discussion draft was released by the OECD in Spring 2014. Following comments from interested parties and a public consultation meeting in April 2014, the OECD paper on Action 1 was published in September 2014. It should be noted that the G20 and OECD intend that final recommendations will form a comprehensive and cohesive approach. As a result, while some of the proposed solutions have been agreed, they are not yet finalised and may be affected by other Actions or decisions and future work on BEPS.

An additional discussion draft was released by the OECD in December 2014 and comments on the discussion draft were published in February 2015.

A final report on Action 1 was released by the OECD on 5 October 2015 as part of its final package of measures.

On 22 September 2017 the OECD released a request for input regarding the tax challenges raised by digitalisation and the potential options to address these challenges as part of the ongoing work of the Task Force on the Digital Economy (TFDE). Interested parties are invited to submit comments by 13 October 2017.

Action 2: Hybrids

Action 2 aims to neutralise the effects of hybrid mismatch arrangements. The OECD intends to do this by making changes to the model tax convention and providing recommendations on the design of domestic rules to prevent hybrids from being a source of ‘double non-taxation’.

Discussion drafts on Action 2 were released by the OECD in Spring 2014. Following comments from interested parties, the OECD paper on Action 2 was published in September 2014. Part 1 of the paper contains recommendations for the design of domestic rules and Part 2 of the paper contains the OECD’s recommendation on treaty issues.

A final report on Action 2 was released by the OECD on 5 October 2015 as part of its final package of measures.

On 27 July 2017 the OECD released a report setting out recommendations to deal with branch mismatch arrangements to bring the treatment of such structures in line with the treatment of other hybrid mismatch arrangements addressed in the 2015 report.

Action 3: CFCs

Action 3 aims to develop recommendations regarding the design and strengthening of controlled foreign company rules, to address concerns over the possibility of creating affiliated non-resident taxpayers and routing income of a resident enterprise through the non-resident affiliate to reduce or avoid taxation.

A discussion draft was released by the OECD in April 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place.

A final report on Action 3 was released by the OECD on 5 October 2015 as part of its final package of measures.

Action 4: Interest deductions

Action 4 aims to limit base erosion via interest deductions and other financial payments. Recommendations are expected to be published for domestic law limitations on tax deductions for both related and unrelated party interest expense and economically equivalent payments. The workstream will also develop guidance for the transfer pricing of debt.

A discussion draft was published by the OECD in December 2014. Interested parties were invited to submit comments by 6 February 2015 and a public consultation was held in February 2015.

A final report on Action 4 was released by the OECD on 5 October 2015 as part of its final package of measures.

An updated report on Action 4 was released by the OECD on 22 December 2016. This includes further guidance the design and operation of the group ratio rule and approaches to deal with the risks posed by the banking and insurance sectors.

Action 5: Harmful tax practices

Action 5 aims to identify and counter harmful tax practices, taking into account transparency and substance. The Action Plan will look at developing recommendations on the definition of harmful tax practices, and developing a strategy to expand to non-OECD members.

An interim report was issued by the OECD in September 2014, setting out the progress made to date on Action 5. Its main focus was on intangible regimes such as patent boxes. Following the report, the UK and Germany put forward proposals endorsing the ‘modified nexus’ approach, which is predicated on a link between the expenditure incurred to develop patents and the income that those patents generate. On 6 February 2015, the OECD announced that the proposals had been agreed by all OECD and G20 countries, and therefore represented a consensus position.

A final report on Action 5 was released by the OECD on 5 October 2015 as part of its final package of measures.

On 11 July 2016, the OECD released standardised IT-format for the exchange on tax rulings (ETR) between jurisdictions, the ETR XML Schema, and a related User Guide.

The Terms of Reference and Methodology for peer reviews on the Action 5 standard for the exchange of information on tax rulings (the "transparency framework"), were released on 1 February 2017.

Action 6: Prevent treaty abuse

Action 6 aims to prevent treaty abuse, through developing model treaty provisions and recommendations regarding the design of domestic rules to prevent the granting of treaty benefits in inappropriate circumstances.

A discussion draft was released by the OECD in March 2014. Following comments from interested parties, the OECD paper on Action 6 was published in September 2014. The report contains model provisions and related Commentary.

A discussion draft on follow-up work was released in November 2014. Comments received from interested parties in response to this draft were published in January 2015, following which a public consultation took place at the end of January 2015.

A further discussion draft was released by the OECD in May 2015, including proposals on how to deal with the follow-up work on Action 6. Interested parties were invited to submit comments by 17 June 2015 and the OECD confirmed that they do not intend to hold a public consultation on the revised discussion draft.

A final report on Action 6 was released by the OECD on 5 October 2015 as part of its final package of measures.

Discussion drafts released by the OECD on 29 February 2016 and 24 March 2016 addressed the treaty entitlement of pension funds and non-CIV fund respectively. A further discussion draft with draft examples was issued on the treaty entitlement of non-CIV funds on 6 January 2017.

The peer review document which will form the basis of the peer review of the Action 6 minimum standard on preventing the granting of treaty benefits in inappropriate circumstances was released by the OECD on 29 May 2017.

Action 7: Permanent establishment status

Action 7 aims to prevent the artificial avoidance of Permanent Establishment (“PE”) status, by redefining the threshold for creating a PE to prevent base erosion and profit shifting. The work includes a focus on the use of commissionaires and keeps some specific activity exemptions, including for warehousing.

A discussion draft was released by the OECD in October 2014. Comments received from interested parties in response to this draft were published in January 2015, following which a public consultation took place at the end of January 2015.

A further discussion draft was released by the OECD in May 2015. Interested parties were invited to submit comments by 12 June 2015 and the OECD confirmed that they do not intend to hold a public consultation on the revised discussion draft.

A final report on Action 7 was released by the OECD on 5 October 2015 as part of its final package of measures.

A discussion draft was released by the OECD on 4 July 2016 on the attribution of profits to permanent establishments. A public consultation was held on 11-12 October 2016.

After considering the comments received on the July 2016 discussion draft and the positions being adopted by countries, the OECD released a new discussion draft on 22 June 2017. This sets out high-level general principles for the attribution of profits to permanent establishments in the circumstances addressed by Action 7. Interested parties were invited to submit comments by 15 September 2017 and a public consultation will be held in November 2017.

Actions 8, 9 and 10 objective is that transfer pricing outcomes are in line with value creation, by requiring that the attribution of value for tax purposes is consistent with economic activity generating that value.

It should be noted that the G20 and OECD intend that final transfer pricing recommendations will form a comprehensive and cohesive approach. As a result, where proposed solutions have been agreed, they are not yet finalized and may be affected by decisions and future work on BEPS in 2015.

A discussion draft on revisions to Chapter 1 of the OECD’s Transfer Pricing Guidelines (including risk, recharacterisation and special measures) was released in December 2014. The draft covers Actions 8, 9 and 10. A Public consultation was held in March 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

A discussion draft on revised guidance on the use of the profit split method, following work previously undertaken by the G20/OECD in relation to Actions 8-10 on aligning transfer pricing outcomes with value creation, was released by the OECD on 4 July 2016. A public consultation on the draft was held in October 2016.

A revised discussion draft on the use of the profit split method was released by the OECD on 22 June 2017 which replaces the July 2016 draft. Building on the existing guidance in the OECD Transfer Pricing Guidelines, as well as comments received on the July 2016 draft, the revised draft is intended to clarify the application of the transactional profit split method. Interested parties were invited to submit comments by 15 September 2017 and a public consultation will be held in November 2017.

On 23 May 2016, the OECD Council approved the amendments to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as set out in the 2015 BEPS reports on Actions 8-10 and Action 13. A discussion draft on the changes to the guidelines was released on 4 July 2016. Amendments were reflected in the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, released on 10 July 2017.

Action 8: Transfer pricing - intangibles

Please refer to comments above in relation to Actions 8, 9 and 10 collectively. Action 8 looks specifically at intangibles and will develop rules to prevent base erosion and profit shifting where intangibles are owned by, used by, contributed to or moved among group members.

A discussion draft was released by the OECD in July 2013 following on from earlier work to modernise this area before the start of the BEPS project. Comments received from interested parties in response to this draft were published in October 2013 and a public consultation took place in November 2013. The OECD released their paper on Action 8 in September 2014.

A discussion draft on cost contribution arrangements was released by the OECD in April 2015. Interested parties were invited to submit comments by 29 May 2015 and a public consultation was held at the beginning of July 2015.

A discussion draft on hard-to-value intangibles was released by the OECD at the beginning of June 2015. Interested parties were invited to submit comments by 18 June 2015 and a public consultation was held at the beginning of July 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

A further discussion draft was released by the OECD on 23 May 2017 providing guidance on the implementation of the approach to pricing transfers of hard-to-value intangibles described in Chapter VI of the Transfer Pricing Guidelines. Interested parties were invited to submit comments by 30 June 2017.

Action 10: Transfer pricing – high-risk transactions

Please refer to comments above in relation to Actions 8, 9 and 10 collectively. Action 10 looks specifically at other high-risk transactions and will develop rules to prevent base erosion and profit shifting by engaging in transactions which would not, or would only very rarely, occur between third parties.

Various discussion drafts have been released by the OECD in relation to Action 10:

A discussion draft on low value-adding intra-group services was released in November 2014. Comments submitted by interested parties were published by the OECD in January 2015.

A discussion draft on cross-border commodity transactions was released in December 2014. Interested parties were invited to submit comments by 6 February 2015.

A discussion draft on the use of profit splits in the context of global value chains was released in December 2014. Interested parties were invited to submit comments by 6 February 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

Action 11: BEPS data collection

Action 11 aims to establish methodologies to collect and analyse data on BEPS and the actions to address it. The OECD intends to do this by developing recommendations regarding indicators of the scale and economic impact of BEPS and ensure that tools are available to monitor and evaluate the effectiveness and economic impact of the actions taken to address BEPS on an ongoing basis.

In August 2014, interested parties were invited to comment on Action 11 and the comments received were published in October 2014. A discussion draft was subsequently published in April 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place.

A final report on Action 11 was released by the OECD on 5 October 2015 as part of its final package of measures.

Action 12: Disclosure of aggressive tax planning

Action 12 aims to require taxpayers to disclose their aggressive tax planning arrangements. This will be addressed through the development of recommendations regarding the design of mandatory disclosure rules for aggressive or abusive transactions, arrangements, or structures, taking into consideration the administrative costs for tax administrations and businesses and drawing on the experiences of the increasing number of countries that already have such rules.

A discussion draft was released by the OECD in March 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place.

A final report on Action 12 was released by the OECD on 5 October 2015 as part of its final package of measures.

A white paper on transfer pricing documentation was released by the OECD in July 2013, with a discussion draft in January 2014 followed by a public consultation. A report was published in September 2014 containing guidance on transfer pricing documentation and country-by-country reporting. This report proposed a new three tier global standard for transfer pricing documentation, including a common template for country-by-country information to be reported to tax authorities and in transfer pricing master and local files.

In February 2015, the G20 and OECD released further guidance on the implementation of transfer pricing documentation and country-by-country reporting. The guidance covers implementation of country-by-country reporting including the timing of introduction, application to ‘large’ businesses and filing mechanisms.

The OECD released an Implementation Package for country-by-country reporting on 8 June 2015. The package consists of model legislation requiring the ultimate parent entity of an multinational group to file the country-by-country report in its jurisdiction of residence, including backup filing requirements when that jurisdiction does not require filing. The package also contains three Model Competent Authority Agreements to facilitate the exchange of country-by-country reports among tax administrations.

A final report on Action 13 was released by the OECD on 5 October 2015 as part of its final package of measures.

Throughout 2016 and 2017 the OECD has released additional guidance on various aspects of the implementation of the transfer pricing documentation and country-by-country reporting requirements under Action 13, including local filing requirements, exchange of country-by-country reporting information and peer reviews.

In particular, on 23 May 2016, the OECD Council approved the amendments to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as set out in the 2015 BEPS reports on Actions 8-10 and Action 13. A discussion draft on the changes to the guidelines was released on 4 July 2016, with amendments reflected in the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, released on 10 July 2017.

A discussion draft was released in December 2014. Comments from interested parties were published in January 2015, followed by a public consultation.

A final report on Action 14 was released by the OECD on 5 October 2015 as part of its final package of measures.

On 20 October 2016, the G20/OECD and other countries participating in the BEPS “Inclusive Framework” published key documents setting out the infrastructure for peer review and monitoring of mutual agreement procedures under Action 14.

The assessment schedule for Stage 1 peer reviews was released on 29 March 2017.

Action 15: Multilateral instrument

Action 15 aims to develop a multilateral instrument to enable jurisdictions to implement measures developed in the course of the work on BEPS and to amend bilateral tax treaties.

A report was released by the OECD in September 2014, identifying the issues arising from the development of a multilateral instrument that modifies bilateral tax treaties. The report concluded that a multilateral instrument is desirable and feasible, and that negotiations for such an instrument should be convened quickly.

Work on the development of the multilateral instrument began on 27 May 2015. More than 100 jurisdictions participated in the ad hoc group working on Action 15 and a discussion draft was released by the OECD on 31 May 2016. A public consultation took place on 7 July 2016 and the final negotiated and agreed text of the multilateral instrument was released by the OECD on 24 November 2016.

A final report on Action 15 was released by the OECD on 5 October 2015 as part of its final package of measures.

On 7 June 2017, 68 jurisdictions signed the multilateral instrument; others have subsequently signed or are committed to sign. The instrument is designed to implement swiftly the tax treaty related measures arising from the BEPS project. “Minimum standard” changes to the functioning of existing bilateral tax treaties in the areas of treaty abuse, mutual agreement procedures and treaty preambles will be implemented through the instrument. In addition, depending on the reservations and notifications made by each party, optional changes to modify tax treaties in respect of permanent establishments, transparent entities, residence tie breakers, double tax relief, minimum shareholding periods, capital gains derived from immovable property, and a jurisdiction’s right to tax its own residents will be facilitated. Based on the initial signatories alone, over 1,100 tax treaties will be amended.

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